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Mountain view

2019 midyear outlook

Trade and other geopolitical issues are heating up. Economic growth is looking more uncertain and market volatility rising. Expect a tougher climb in 2019.

Time for more defense


Nuveen’s investment theme in 2019 has been Expect a tougher climb. A straightforward declaration, but one with nuance and range: For the first half of the year, the emphasis was still on “climb.” Recently, however, the “tougher” part has been getting the upper hand. That was certainly the case at the midyear meeting of Nuveen’s Global Investment Committee, where we debated what’s been happening in the markets, where we might be headed and, of course, what it all means for our clients’ portfolios. As you’ll see in this outlook, we don’t think we’re at the end of the current economic cycle, but we do think it makes sense for most investors to look for more defensive positioning while staying invested—and to rely on the benefits of a flexible and nimble, active management approach.

2019 has, so far, been a year of confusion and contradiction. We’ve all been intensely focused on issues such as the escalating global trade war, but up until relatively recently, markets have largely shrugged off these threats. And we’re seeing broader political uncertainty in the form of growing populism (i.e., nationalism) that weighs on investors’ minds even if it hasn’t yet affected long-term values. At the same time, central bank policy (especially in the U.S.) took a sharp turn from hawkish to dovish without much really changing from a fundamental perspective.


 
 















This sort of confusion is exactly why we established the Nuveen Global Investment Committee. Increasingly, our conversations with our clients are much more about holistic portfolio construction and less about specific products we manage. We’re talking to them about issues such as how to generate additional yield, how to better incorporate responsible investing practices into their portfolios, how to shift to a more defensive position without abandoning long-term goals, and how different asset classes and different investment types can work together to meet those goals.

So where did we land after these discussions? The headline: We think the second half of the year will be tougher than the first. At the start of the year, we pointed to a trade war escalation as the downside scenario. And now we need to acknowledge that this has come to pass. In addition, we’re focusing on the possibility of a weaker economic environment over the coming months. And we don’t think we have seen the end of downside corporate earnings revisions.

But we’re not suggesting getting out of the markets. Far from it. All of our asset class leaders and portfolio managers remain committed to finding opportunities in their respective markets at all times—that’s our job, after all. But we’re also working to more actively mitigate possible downside by focusing on quality defensive growth stocks, identifying more resilient yield opportunities in fixed income and finding yield and diversification benefits throughout real assets, real estate and other alternatives.

And all members of the GIC agree now is a time to focus on selectivity, a theme that runs across all of the asset classes we manage. That means diligent research, focused risk management and careful portfolio construction. The good news is that this environment also plays into the benefits of Nuveen’s broad, diverse and deep investment platform and our overall portfolio approach on behalf of our clients.


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Endnotes


Sources 



All market and economic data from Bloomberg, FactSet and Morningstar 



The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. 


Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible. 


All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. 


Glossary


S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. 


A word on risk 


All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Foreign investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria excludes securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy. 


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This information does not constitute investment research as defined under MiFID. In Europe this document is issued by the offices and branches of Nuveen Real Estate Management Limited (reg. no. 2137726) or Nuveen UK Limited (reg. no. 08921833); (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN), both of which entities are authorized and regulated by the Financial Conduct Authority to provide investment products and services. Please note that branches of Nuveen Real Estate Management Limited or Nuveen UK Limited are subject to limited regulatory supervision by the responsible financial regulator in the country of the branch.